Dell, Inc. Company Analysis
Team 1 Project 4
Chad Daniels and Sarah Stottsberry
Dell Inc. designs, manufactures, and supports technology components including personal computers, notebook
computers, and servers. It also manufactures computer peripheral equipment including data storage devices, network
switches, printers and toner. Dell witnessed significant growth during the 1980’s and 1990’s, rising to the ranking of
25th largest fortune 500 company in 2006. Additionally, in 2006, Dell was identified as one of 38 high-performance
companies according to the S&P 500 since it had outperformed the market during the previous 15 years.i
Product Lines
Server and Storage Systems:
Enhanced Services:
The PowerEdge server is Dell’s primary product in this line. It was
recently enhanced with dual-core technology that has shown 50%
performance gains to previous models. Additionally, in 2006 Dell
was the fasted growing storage vendor by providing the Dell
PowerVault and Dell|EMC products that enabled Dell to experience
a 38% revenue increase in this area.
Dell offers a seven service suite including Assessment Design and
Implementation, Deployment Services, Asset Recovery and
Recycling, Training, Enterprise Support, Client Support and
Managed Lifecycle Services. These services amounted to 9% of its
overall revenue. In 2006, Dell experienced a 33% increase in
revenue from these services that is attributed to demand for server
and storage products. Dell focuses on a direct relationship with its
customers, suppliers and partners by tailoring products and services
to support unique customer needs. This focus resulted in Dell
providing products to 90% of the fortune 500.
Desktops and Notebooks
Software and Peripherals
The OptiPlex desktop offers features tailored to the corporate
desktop user. It offers a highly reliable infrastructure and makes for
easy network connectivity. Additionally, Dell offers the Latitude
notebook to its corporate customers packed with features that
enable the mobile worker to “work anywhere”. On the consumer
end, Dell offers the Inspiron desktop enabling high performance, but
at an affordable price. For the gaming enthusiast, the XPS notebook
or desktop is the optimum choice.
This category includes offerings of Dell plasma and LCD TVs,
projectors, music players, and Axim handheld computers. It also
offers software and peripheral products from over 900 other
manufactures. This offering includes items such as monitors,
wireless products, memory and digital cameras and scanners. In
2006, 15% of Dell’s revenue was attributable to products in this
category.
Printers
Dell offers a range of printers including photo all-in-one for the
general consumers, as well as multi-function and laser printers
geared toward the corporate client. It focuses on lowering cost of
printing to its customers by offering the Dell Ink Management
System, and Dell Toner Management systems. It experienced a
33% increase in revenue in this category in 2006 due to its focus
from inkjets to color laser, and all-in-one ink jet printers.
Additionally, in 2006, it was able to capture the 2nd place in laser
printers after only three years in this category.
Geographic Regions
Dell operates in three specific geographic regions including the Americas, Asia Pacific and Japan, and Europe. In
1996, Dell experienced the greatest increase in shipments in Asia Pacific and Japan at 19% and 21% respectively.
Additionally, it experienced a 31% increase in shipments to China. Dell expects this region to increase significantly
in the future given its continued acceptance of the internet and Dell’s direct selling model. However, Dell
understands that the direct model is not the optimum channel for all consumers. In October of 2007 Gome, China's
largest electronics retailer, began selling Dell computers. Gome owns 1,000 stores in 200 Chinese cities.ii
i
Mark L. Frigo, Belvard E. Needles and Marian Powers: "Strategy and Integrated Financial Ratio Performance Measures: Further Evidence of
the Financial Performance Scorecard and High Performance Companies". Studies in Managerial and Financial Accounting Volume 16, (2006).
ii
http://www.businessweek.com/globalbiz/content/sep2007/gb20070924_415686.htm
Distribution Channels
Direct Model
Dell’s direct model of distribution focuses on selling products and services directly to the customer. Due to the lack
of wholesalers and retailers in the purchase transaction, it has enabled Dell to offer low cost solutions to customers
ranging from corporations, government agencies, and small to mid-size businesses and individual consumers.iii This
model revolutionized the computer industry during the 1990’s since traditionally manufacturers would partner with
resellers and dealers to sell their products. With its focus on the customer, the direct model has given consumers the
ability to obtain quality products at lower costs, and access to products and services that are easy to obtain and to
use. Dell’s direct model focuses on 5 main doctrines:iv
Most Efficient Path to Customer: It eliminates unnecessary levels in the sales channel which only add confusion
and additional costs.
Single Point of Accountability: When a customer needs help, they have direct access to a single entity that can
provide answers.
Build-to-Order: Customers have the ability to custom configure and order the system that is right for them.
Low-Cost Leader: Due to a very efficient supply chain and manufacturing processes, and a focus on providing
value to consumers, Dell has historically been able to offer low-cost solutions.
Standards Based Technology: Instead of using proprietary components, Dell focuses on using internal and external
technology that has been researched and developed.
Indirect Model
While for many years Dell was able to capitalize on its low-cost leadership, the advent of the notebook computer
and its continued demand has driven Dell to reevaluate its distribution process. Dell was able to compete effectively
on cost in the category of personal computers for many years, but the growth rate of the notebook industry was not
realized and Dell for the first time had to face an unknown world. Initially, quality issues were common including
broken hinges, and faulty battery packs.v Additionally, Dell realized that the build-to-order, customizable approach
was hard to adapt to the notebook computer.vi Furthermore, historically Dell dealt heavily with corporations and
home users who have the benefit more often than not, of knowing in advance as to when they would need a new PC
and they didn’t mind waiting a few days until the device would arrive. Today however, customers are typically
happy to choose from more standardized PC models. In the past, demand was comparatively low for each product
offering, but now each standardized offering enjoys a much higher margin.vii Due to these realizations, Dell has
recently partnered with some retail channels.
iii
iv
v
vi
vii
http://www.business2000.ie/cases/cases/case409.htm
http://www.dell.com/content/topics/global.aspx/corp/background/en/directmodel?c=us&l=en&s=corp
http://query.nytimes.com/gst/fullpage.html?res=9F0CEFDA1E3FF93BA15756C0A965958260&sec=&spon=&pagewanted=all
http://www.nytimes.com/2007/05/25/technology/25dell.html?fta=y
http://www.kellogg.northwestern.edu/faculty/chopra/htm/research/SCS-October06%208.pdf
In May 2007, Dell entered into an agreement with Wal-Mart that places its products into 3,400 locations. Nearly
3000 of those stores have already begun selling the products, competitively priced for under $700.viii Additionally, it
has signed contracts with Staples and Best Buy. While it is still very early, there is evidence that this move has paid
off. Retail sales helped Dell overcome HP shipments by reaching 5.35 million units sold in Q4, 2007.ix There has
also been talk to extend this US retail presence to Circuit City.x Until recently, Dell has been promoting itself as a
direct marketing and sales brand worldwide. However, the direct model is not embraced by all geographic regions.
For instance, in the BRIC (Brazil, Russia, India, and China) countries it has experienced some challenges. Christine
Rand, Director-Marketing Client Products, Dell South Asia stated “We will relook at methods to capture India, rural
retail markets, etc”. xi Additionally, operations in China have shown that the retail sales model may be challenging
as well. Dell has found that PC sales in China are more likely to occur in IT Malls, as opposed to a department store
like Gome. However, by partnering with Gome, Dell hopes to overcome the challenging buying experience that
consumers have in the IT Malls.xii
While Dell has tried to achieve a balance between direct and indirect in the past, they have faltered on the indirect
side. In the same fashion HP has somewhat faltered on the direct model and excelled with indirect. The key
difference is that until Michael Dell returned to CEO, the indirect model had been an afterthought, an idea that they
entertained but didn’t focus on with the same effort that was used with the direct model. While defiantly “behind the
eight ball” Dell has now begun to put substantial effort into the indirect 3rd party retailers. This is not to say that Dell
should leave the direct model behind. The benefit of using both allows them the flexibility to adjust accordingly
when one model is not producing as high as the other. The key component is the market has changed and companies
need to change accordingly.
Market Share
Q3 2006 proved to be a disappointing quarter as Hewlett Packard was able to surpass Dell for the first time since Q4
2003 at 16.3% of total global shipments.xiii The final results of 2006 showed that HP and Dell were virtually tied for
the position of #1. Unfortunately, 2007 proved to be another disappointing year with respect to global market share
as HP was able to move itself into the official number one position at 18.2% total shipments worldwide. While HP
witnessed a 30% growth in sales, Dell merely saw a 1.7% increase. With worldwide PC shipments increasing at a
rate of 16%, Dell has clearly lost its position as the global leader.xiv On a positive note, they have been able to
maintain the lead in the U.S. market at 32%.
viii
http://www.betanews.com/article/Dell_WalMart_Sign_Retail_Pact/1180026053
http://www.engadget.com/2008/01/17/dell-overtakes-hp-in-us-sales-hp-plans-elaborate-retaliation
x
http://www.forbes.com/2007/12/06/dell-best-buy-markets-equity-cx_ml_1206markets22.html
xi
http://www.moneycontrol.com/india/news/BUSINESS%20NEWS/dell-readies-new-mktg-strategy-for-india/07/54/280851
xii
http://www.businessweek.com/globalbiz/content/sep2007/gb20070924_415686.htm
xiii
http://en.wikipedia.org/wiki/Dell
xiv
http://www.gartner.com/it/page.jsp?id=584210
ix
Core Competencies and Environmental Responsibility
On the surface, one might immediately think that Dell’s direct sales model is the core competency that it has been
able to capitalize on for years. However, a more in depth view may uncover that the direct model has historically
been Dell’s competitive advantage. As we have seen in recent years, this competitive advantage has lost momentum
as HP and other competitors have been able to overtake the market. Therefore, the core competency is not the
model itself necessarily, but it is Dell’s ability to fine tune business processes in order to make the direct model a
success. Dell’s focus on supply chain efficiency is the core competency that it has achieved over the years. This
efficiency is comprised of four main qualities including demand management, internal collaboration, leveraging of
partners, and focusing on financial fundamentals.xv
Demand Management
Dell has been able to manage demand through its direct sales model. By selling directly to consumers and building
computers to order, it has been able to create a real-time relationship with consumers as well as suppliers. This
harmonization is made possible in part by locating manufacturing facilities as close to the end consumer as possible.
In order to serve the American market, manufacturing takes place in Lebanon, TN, Austin Texas, and WinstonSalem, NC. To serve the European market, it operates facilities in the Republic of Ireland and Poland. Additionally,
it has manufacturing operations in China, Malaysia, India and Brazil.
The ability of Dell’s workforce to live comfortably in a world of ambiguity has also helped streamline its supply
chain. Although forecasted demand allowed initial planning to occur, Dell was quick to monitor demand changes
and to look for obstacles that it needed to overcome in order to fulfill demand. Working with third parties to
expedite supply of components was a crucial.xvi For instance, it was able to overcome the West Coast port strike in
2002 by finding alternate modes of transportation in order to obtain shipments from Asia.xvii
Internal Collaboration
Dell not only focuses on “direct” in regard to its supply chain, it also applies this concept to the internal culture of its
organization. Dell for many years was a relatively flat organization. This enabled decisions to be made quickly and
employees to understand that they have the power to make crucial decisions without formal support of upper
management. Dell employees understand that their main focus is to fulfill demand and they know at times decisions
have to be made immediately in order to accomplish the task. Upper management stays informed through
communicating with assembly employees during scheduled project briefings. This open atmosphere has proven to
be a success as shown by the “Tell Dell” survey which encourages employees to communicate with upper levels of
management. At one point, 90% of the global workforce was participating in the surveys.xviii
Leveraging Business Partners
By using information technology to obtain and share supply and demand information, Dell has been able to leverage
its business partner relationships. For suppliers, this means a wealth of real-time information about inventory levels.
Additionally, suppliers are expected to share information about their abilities to supply components. This, along
with Dell’s forecasted demand figures, allows for real-time management of the supply chain.
Additionally, Dell has leveraged business partners by locating suppliers next to factories which eliminates
unnecessary transportation of components. It also requires strict performance standards of its suppliers. Every
quarter, supplier goals are instantiated and a meeting takes place to provide feedback on performance. This enables
Dell to ensure that its suppliers are able to effectively handle changes in demand.
Business Fundamentals
Dell has successfully been able to focus the entire supply chain on operating efficiency, and the key metric that it
uses is operating margin. Dell managers are expected to be able to communicate the key performance figures at any
time. Reviewing such figures as inventory, receivables, selling price, and overhead costs on a continual basis, gives
managers the information they need to communicate performance to all levels of the organization.
xv
http://goliath.ecnext.com “Dell’s Supply Chain DNA”
http://www.slate.com/id/2071878/
xvii
http://goliath.ecnext.com “Dell’s Supply Chain DNA”
xviii
http://www.news.com/2030-1069_3-5366494.html
xvi
Additionally, Dell fosters the importance of performance through programs such has Business Process Improvement
(BPI). In 2002, Michael Dell disclosed that the company had saved $800 million dollars through BPI.xix As of 2004,
Dell had witnessed more than 1000 Simplified Idea Generation (SIG) projects instantiated. These projects are just
some of the by products of BPI wherein an employee is coupled with a manger who sponsors them as they follow
through with their suggestion.xx
The Environment
Recently Dell declared its intention to be the "greenest technology company on the planet." Mr. Dell stressed that
"it's not enough that Dell just be an environmental leader--we must also partner with our customers through the
technology we deliver to dramatically improve their environmental performance." In the company's most recent
sustainability report, he asks readers to "judge us not by what we say, but by what you see us do."xxi
In its effort to become the environmental leader, Dell has committed to reduce the carbon intensity of its global
operations 15 percent by 2012, has plans to become carbon neutral in the US by the end of 2008 and has extended its
“Plant a Tree for Me” program to Europe. Dell also began requiring suppliers to report emissions earlier this year.
Dell is clearly taking a leadership approach in its effort to become one of the greenest technology companies.
With regard to their product offerings and green options, Dell recently released a new line of blade servers that
target HP and IBM's server businesses, aiming to use less energy and offering better performance. Dell said its new
M-Series PowerEdge blade servers consume as much as 19 percent less power and achieve up to 25 percent better
performance per watt than some of HP's blade servers, and uses 12 percent less energy for 28 percent more
performance per watt than an IBM line. Additionally, Dell has made the new servers lead-free for those customers
who are seeking to green their IT department while improving performance.xxii This energy conservation is not only
beneficial for the environment but corporations are also seeing a shift in expenses. In many corporations, the IT
department now has to consider a portion of the company’s energy bill in to their department budget. With this in
mind, many CIO’s are looking for energy cost savings in order to maintain a budget that allows them to spend
money on actual hardware.
Financial Strength
While Dell has experienced some challenges in recent years, the good news is they are trying to come back. While
they are not making giant leaps in their total revenue, it does continue to rise. With involvement in retail stores in
addition to several recent acquisitions, Dell appears to be not only focused on the present but the future as well.
Unfortunately investor confidence is taking a toll as they watch the stock price continue to decrease, specifically
over the last four months. Currently the stock is slowly recovering from a 52 week low set on February 7th of this
year. In May of 2007 Michael Dell stated that over the next 12 months they would cut their work force by 10%.
Given that they have recently announced they will be cutting 1,200 jobs in addition to closing one of the Canadian
call centers and 140 kiosk stations, they have already made approximately 5,500 cuts reaching close to two thirds of
their 10% goal.
Buying stock back in December helped to give them some flexibility in completing the Equallogic acquisition. In
addition, the IDC expects “shipments of iSCSI-based storage solutions will increase 138 percent annually over the
next five years”xxiii. If this holds true, Dell can expect to have a brighter future. The other challenge that faces Dell
on a financial level is their apparent move to Software as a Service options. While there are definite financial
benefits in the long term, the short term could be challenging.
Dell has a very low Debt/Equity ratio and when comparing its share price relative to its earnings, it is cheapest
among its competitors. Additionally, Dell’s current Debt/Equity ratio at.10 is just under the Personal Computer
Industry average of .11 and exceptionally under the Technology sector’s average of .74. Moreover, HP, while in the
xix
xx
xxi
xxii
xxiii
http://www.networkworld.com/nw200/2003/03nw200mainside.html
http://goliath.ecnext.com Dell’s Supply Chain DNA
http://www.greenercomputing.com/reviews_third.cfm?NewsID=36606
http://www.greenercomputing.com/news_third.cfm?NewsID=36564
http://news.moneycentral.msn.com/ticker/article.aspx?symbol=US:DELL&feed=BW&date=20080204&id=8135777
Diversified Computer Systems industry, has a Debt/Equity ratio of .21. This low debt along with total revenue
continuing to increase over the last 4 years; indicates that Dell is poised to return as a stable company.
Dell's current assets exceed their current liabilities which would indicate that the working capital is sufficient to
handle the needs of the company. General cash flow is also positive and continues to grow. In November of 2007
CFO Don Carty "noted that the company is flush with cash, with about $15 billion currently on the books and has
plans to invest in several key areas, as well institute stock buybacks"xxiv Their Net Cash flow has also increased by
$2.5 million over last year. This indicates that Dell is managing their working capital in a manner that produces a
positive cash flow. In addition, 3rd quarter of 2007 their net income rose 27 percent to $766 million from $601
million in 3rd quarter 2006. This is prior to the $10 billion in stock repurchase and the purchase of EqualLogic for
$1.4 billion. The entire picture indicates that Dell is starting to turn their finances around and justifies Carty's
comment of "We want to do a better job...but we are pleased with the quarter."xxv
Internal Changes
Since January 2007 when Michael Dell returned as CEO, the following people have taken key leadership positions
in the company. Donald Carty from AMR is now the Vice Chairman and Chief Financial Officer, Michael Cannon
from Solectron is now President, Global Operations, Ronald Garriques from Motorola is now President, Global
Consumer Group, and Stephen Schuckenbrock from EDS is now Senior Vice President and President, Global
Services, and Chief Information Officer. Dell also adjusted his direct reports from 24 to 12. With these changes Dell
and the company have begun to see the need to streamline business processes once again, and they are hopeful that
fresh innovative ideas will be obtained by acquiring individuals from outside the organization.
Conclusion
While founded in 1984, it was the 90’s when Dell truly prospered. Dell’s lack of forward thinking and slowness in
adjusting their sales model to the current times has contributed to their downfall over the last few years. Yet, hope is
not lost. Michel Dell’s return to the position of CEO and his acknowledgement that “The direct model has been a
revolution, but it is not a religion,”xxvi appears to be the catalyst. Moving into the third party retail markets for
consumer PC’s has allowed Dell computers to become personal. Their hope is to become as effective in the indirect
retail market as they have in the direct market with regard to personal computers. Not only will they have to fine
tune these operations in the US, but they will also have to determine the right marketing mix for emerging markets.
Within the corporate world, Dell has begun to make changes that will hopefully allow them to compete effectively
in the future. Currently they are taking time to expand their portfolio as well as to examine their overall company
structure. This is evident by the financial, management and organizational restructuring they are currently focused
on. While they are late to start these changes, the fact remains that change is happening and Dell appears to be
committed to improving themselves.
As with any company, Dell will undoubtedly face challenges in the future. The possibilities of a downturn in the
U.S economy, uncertainties abroad, and challenges with recently acquired companies are just some of them.
Regardless, we look forward to exploring ideas for their future.
xxiv
xxv
xxvi
http://www.news.com/8301-10784_3-9826468-7.html
http://www.news.com/8301-10784_3-9826468-7.html
http://www.nytimes.com/2007/04/28/technology/28dell.html
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